WASHINGTON --
Comptroller of the Currency John D. Hawke, Jr., told a congressional panel
today that while the OCC supports the objectives of the proposed Basle II
capital framework, it is important that regulators carefully consider industry
comments before moving forward.
The OCC, which has
the sole statutory responsibility for promulgating capital regulations for
national banks, will not sign-off on a final Basel II framework until we have
determined through this notice and comment process that any changes to our
domestic capital regulations are reasonable, practical and effective, Mr.
Hawke said in testimony before the Subcommittee on Domestic and International
Monetary Policy, Trade and Technology of the House Committee on Financial Services.
The Comptroller
expressed concern that the level of detail and specificity in the current
proposal could lead to excessive complexity.
This has led to a
proposal of immense complexitygreater complexity, in my view, than is
reasonably needed to implement sensible capital regulation, Comptroller Hawke
added. I believe we must avoid the tendency to develop encyclopedic standards
for banks, which minimize the role of judgement or discretion by banks applying
the new rules and of supervisors overseeing the new rules.
Excessive
complexity could also increase the cost of implementing new capital rules, Mr.
Hawke said. In addition, he added, Basel II must be written in a manner that
is understandable to the institutions that are expected to implement it, as
well as to third parties.
Mr. Hawke told the
congressional panel that regulators need to think carefully about the impact of
Basel on competitive equality, not just between foreign and domestic banks, but
also between large and small institutions and between banks and non-banks.
The U.S. has a
highly developed bank regulatory system, with up to 30 examiners resident
year-round at the largest banks. Other countries, by contrast, may rely more on
outside auditors.
Given such
disparities in the methods of supervision, it seems to us inevitable that an
enormously complex set of rules will be applied much more robustly under our
system than in many others, Mr. Hawke added.
The Comptroller
also warned that regulators must take account of the needs of small banks,
which would continue to operate under the current capital system after the new
Basel standards were implemented for large institutions.
There is also a
concern about the potential effect of Basel II on the competitive balance
between large and small banks, Mr. Hawke said. As it is likely to be implemented in the U.S., Basel II would
result in a bifurcated regulatory capital regime, with the largest banks
subject to Basel II-based requirements and all other banks subject to the
current capital regime.
Mr. Hawke
underscored that the OCC supports the view that there should be an appropriate
charge for operational risk.
But I have also
consistently argued before the Basel Committee that the determination of an
appropriate charge for operational risk should be the responsibility of bank
supervisors, under Pillar 2, rather than being calculated using a formulaic
approach under Pillar 1, he said. I regret to say that I have not been able
to persuade the Committee to adopt this approach.
The three pillars of the Basel II capital framework focus on
minimum regulatory capital, enhanced supervision and market discipline,
respectively.
The Comptroller noted that the addition of an option to use
the Advanced Measurement Approach, which the OCC helped develop, is a
significant improvement to the operational risk measurement. However, he said, the OCC remains receptive
to comments on this aspect of Basel II.
Mr. Hawke said that while the OCC
supports a temporary capital floor, as proposed by the Basel committee, the
agency does not believe that a reduction in minimum regulatory capital
requirements for certain institutions is a problem if the reduction is based on
a regulatory capital regime that reflects the degree of risk in that banks
positions and activities.
But we are not yet at the point where we can make a really
confident judgment about the impact of Basel II on capital levels, he added.
QIS-3, the latest qualitative impact study, was based on an incomplete
proposal and was applied by the banks without any of the validation or control
that would be present when the new regime is in full force. Thus any effort to calibrate new capital
requirements based on QIS-3, must confront great uncertainty. This uncertainty
further illustrates the importance of moving cautiously before we incorporate
Basel II into our domestic capital rules.
If we determine through our rulemaking process that changes
to the Basel proposal are necessary, we will press the Basel Committee to make
changes, Mr. Hawke concluded. And we
further reserve our right to assure that any final U.S. regulation applicable
to national banks reflect any necessary modifications. Given the importance of this proposal, we
need to take whatever time is necessary to develop and implement a revised
risk-based capital regime that achieves the state objectives of the Basel
Committee both in theory as well as in practice.
# # #
|
The OCC charters, regulates and examines
approximately 2,100 national banks and 52 federal branches of foreign banks
in the U.S., accounting for more than 55 percent of the nations banking
assets. Its mission is to ensure a safe and sound and competitive national
banking system that supports the citizens, communities and economy of the
United States.
|